Why does Britain have more children in workless households than anywhere else in Europe? And what family policy should we have?

"UK’s unemployment rate increases to highest level in 17 years" was a typical headline in response to yesterday's unemployment figures. As well as arguments over how we can get more jobs, this week also saw the beginning of big debates about childcare and child poverty. The two are intimately connected.

Wider still and wider?

Looking at the rates claiming the main out of work benefits, we are not doing well. But, sadly, we weren't doing that much better during the years of the debt fuelled boom either. The proportion of people claiming the main out of work benefits was actually the same in the most recent statistics (covering May 2011) as it was in May 2004, at 12.1%. That's a nearly one in eight adults of working age on out of work benefits. Over the long boom the total on out of work benefits was eroding away. But too slowly, so the recession has taken us right back to an appalling level.

We didn’t think we had an unemployment crisis back in 2004 – in fact commentators were writing about "full employment". But we were wrong. The numbers that are published most regularly and get the most attention – the blue band at the bottom representing Job Seekers Allowance – are only a part of a much bigger picture.

We need to handle the numbers on those claiming Job Seekers Allowance with particular care now. The last Labour government (rightly) started trying to divert people from incapacity benefits and Income Support onto to Job Seekers Allowance. For example, the point at which lone parents are are asked to move from Income Support to Job Seekers fell in steps between 2008 and 2010. As a result the number of lone parents on income support fell from 738,000 in May 2008 to 595,000 in May 2008 – a big drop despite the recession.

So part one of the answer to the question in the title of this blog is that we have high unemployment, and have had for a long time.

Winner takes all?

Look at the distribution of work over time and the UK's long run performance starts to look even worse. Because of the way changes in family structure have combined with changes in the economy, there has been a polarisation of the labour market into more households where everyone works, less households where one member of a couple works, and more households where no-one works.

Female employment has generally been rising over recent decades while male employment has fallen, as this chart from the Resolution Foundation shows:

But the women who have gone out to work have tended to be highly skilled and in couples where the man already worked – rather than from the kind of households where male employment was being lost.

At the same time, the proportion of single adult households rose too: both lone parents and people without children. Between 1983 and 2009 lone parents rose from 4.3 to 11.2% of households, while single people without kids rose from 15.8% to 28.6% of all households.

The graph below (and the data above) is from a brilliant book by Paul Gregg and Jonathan Wadsworth. The upper line shows the proportion of workless individuals. The darker lower line shows the proportion of households that are workless.

Though things got a bit better during the boom years, the number of workless households today is twice as high as the late 1970s. Gregg and Wadsworth note that roughly half of the rise in the number of workless households over the last couple of decades is due to widening inequality in the distribution of work. They also find that this polarisation of the labour market seems to be more pronounced in the UK than in the US, Germany and France. Only Australia seems to have anything like a similar level of polarisation.

This polarisation is another part of the explanation of why the UK has a larger proportion of children living in workless households than any other European country:

There are other reasons too. Until Labour reformed it in 2008, it was possible to claim income support until your youngest child was 16 – a very unusual policy compared to other European countries which expect parents to work when their children were much younger. This was a mistake, and is steadily being reformed.

But that on its own is not enough to fix this shocking state of affairs. Unless we can reduce the number of children in workless households, we will never reduce the rate of child poverty in the UK.

Child poverty

Two-thirds of all children in workless households are in lone parent households. Half of all children of lone parents live in households that are workless. This compares to just one in fourteen for children of couples.

Tax credits and various other policies helped to increase the proportion of lone parents who have some work from 45% in 1997 to 57% in 2007. But that's still very low, and much of the increase comes from working part time – not always enough hours to get the money they need.

Having enough work is the key to reducing child poverty. I've argued for the last couple of years that the government should focus on tackling the causes of poverty (like worklessness) rather than fighting the symptoms with benefits. And the Government's rhetoric seems to be moving in the same direction.

Earlier this week Alan Milburn, the coalition's adviser on social mobility, warned that the government will miss its legally binding targets to reduce child poverty by 2020, and should "come clean" about it. He suggested that the government should focus more on providing services than cash benefits in future. Just last week Iain Duncan Smith suggested a change of approach.

Only 7% of children in households where everyone works are in poverty on the official (relative) measure. But 53% of children in workless households are. In fact 63% of children in workless households in were in poverty before the recession dragged the average down – showing again that it's a perverse measure.

I still think that work is the best route out of poverty, and I think policy over the last decade hasn't been that successful in promoting it. How could we do better?

Another suggestion that often crops up is to improve access to childcare. Two reports out this week suggest ways to do just that. One argument is that we should be aiming to fund free universal childcare to make it easier for parents to go out to work – as in Scandinavia. That's advocated in a new report for the IPPR.

As their report shows, the UK already spends a lot on family benefits – more than almost any other developed country. But compared to Sweden and Norway, much more of this spending goes on putting cash in people's hands, rather than providing services.

Providing a universal service avoids creating disincentives to work, but costs lots of money. Giving people a service rather than cash increases the chance that the money will be spent on what policy makers intend (the child) and the disadvantage that it limits parents choice, and might rule out more cost effective options.

The IPPR paper argues that such spending will pay for itself, by increasing employment and tax revenues. I suspect the Treasury will be rather sceptical of this argument. I would assume the deadweight costs would be huge. People already working and paying for childcare could stop paying. People also like free stuff. So hours of childcare that used to be provided by granny would be picked up by the taxpayer instead.

The sums involved are pretty big too – we'd have to spend an extra £7 or £8 billion a year to match Sweden's spending on services for children (unless we could pay for it by cutting other benefits). Its a tricky moment to find such sums.

And lots of the data that might settle arguments about childcare is missing or patchy. To what extent does spending more on childcare improve their development? How much does the cost of childcare affect whether parents will work or not? Is being unemployed really bad for your kids? And do government subsidies for childcare just displace childcare people had arranged for themselves?

A separate report for the Resolution Foundation makes a similar argument, but suggests finding the money by making benefits a lower priority:

"there is a case for shifting the emphasis of future spend away from some cash benefits and towards services like childcare."

They also note that some of our current cash benefits tend to discourage work:

"Transfers that are not work-related, like Child Benefit (CB), have been shown to increase fertility and reduce female employment… Very broadly speaking, the Working Tax Credit has a positive effect on female (and male) employment and the Child Tax Credit has a counterbalancing negative effect (as might be expected from their design)."

What do we actually want?

The above is an important point for two reasons. Firstly, because I don't think you can easily separate out childcare from wider family policy and the operation of other benefits. And secondly because it recognises that there are lots of trade offs when it comes to family benefits and childcare.

Government wants to increase the incomes of parents not in work, but wants to avoid creating incentives not to work. It wants to be fair to parents, and also those who aren't parents. It wants to give people choice, but also wants to avoid wasting money.

People have radically different ideas about what government should be doing. At what point after birth should the benefit system encourage mothers to work? Should the government try and push people towards higher quality childcare, even if it is more expensive? Should the government support marriage? Or try to change people's parenting behaviour? Should we be encouraging people to have more kids?

Partly because there are so many different opinion on these questions, In Britain we have a huge mish-mash of different family policies. These often pull in different directions because they were created by politicians in different eras with very different priorities and values. We have, for example:

And each of these policies is complicated and comes with different conditions and rules attached. No wonder many parents are confused.

What to do?

Given the complexity above I can't really claim to have a brilliant potted solution just yet. But here are some directions we could move in.

Front load support. Whatever childcare support there is going to be is more useful in the early years, and my bias is that if you can get people to return to work, they will probably stay there, even if you reduce support as the kids get older.

Focus on workless households not just individual worklessness. One attractive feature of the universal credit is the attempt to reduce the couple penalty and the attempt to get as many households some work. People sometimes worry that this is sexist. But I strong suspect that for the low income couples in question, it is at least as likely that women will find work as men.

Question the cost of childcare. Childcare providers have to comply with all kinds of regulations to be eligible to benefit from childcare subsidies. These are meant to increase the quality of childcare. But it might also increase the cost. So on balance, is it worth it?

These are all things I want to think more about. If you want more fully worked up ideas then two people who have thought a lot about the overall design of family policy are are Peter Saunders and Catherine Hakim.

Overall, it strikes me that these are tricky issues for politicians: a lethal combination of being emotive, expensive, and complicated. As they move centre stage, I expect there to be plenty of big arguments ahead.